Lower duty to bring down auto prices

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SummaryGiven how expectations were tempered, India Inc was pleasantly surprised at finance minister P Chidambaram’s attempts...

Given how expectations were tempered, India Inc was pleasantly surprised at finance minister P Chidambaram’s attempts to revive consumption demand and boost manufacturing. The FM trimmed excise duties on automobiles by 2-6% and on capital and consumer goods by 2-10%. Companies are more than happy to pass on the benefits to customers and are hoping the steps won’t be reversed once a new government assumes power.

Automakers were jubilant, with Pawan Goenka, ED & president (automotive), Mahindra & Mahindra, confirming prices of some SUV models would come down by R40,000. “Prices should fall by 3-4% and I would presume most companies will pass on the entire reduction immediately, because nobody is going to buy cars unless there is a cut,” Goenka said, adding the move would be margin-neutral for his firm. RC Bhargava, chairman, Maruti Suzuki, said a 4% reduction in duty generally leads to a 3.5% reduction in prices, though he wasn’t sure price cuts would spur sales.

Capital goods makers were somewhat more circumspect. R Shankar Raman, CFO, Larsen & Toubro, pointed out that the drop in excise duties for capital goods, while a positive, would have a limited shelf life, till perhaps June 2014.

“If the manufacturing space and capital goods sector in particular is to get a boost, more sustained initiatives are called for. The capex spends of PSUs needs to see an increase to spur a recovery in capital goods,” Shankar Raman observed.

Excise duty for small cars, scooters, motorcycles and commercial vehicles will come down to 8% from 12% earlier. SUVs will attract excise duty of 24% against 30% earlier. Excise duty on large cars will now be 24% compared with 27% earlier, while the duty on mid-sized cars will go down to 20% from 24% previously.

Depending on the products, the price cuts will range from Rs 1,500 to Rs 80,000. The sector has been reeling under a severe demand slowdown, with sales during the April-December period declining 5.72% year-on-year at 18.28 lakh units. Hyundai Motor India (HMIL) MD and CEO B S Seo said the excise duty cuts were a breather. “This will make cars more affordable since the benefit will be passed on to the consumers immediately,” he added.

The consumer durables space may take time to pass on the duty cuts given input costs have gone up by 10-12% in the last two years. George Menezes, COO, Godrej Appliances said, however, that

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